Trump’s executive order halting enforcement of the Dodd-Frank "fiduciary rule" is a done deal. The rule would have compelled financial advisers to act as fiduciaries, in the best interest of their clients.
Now, the best advisers already do act as fiduciaries, with their clients’ best interests at heart. But of course there are some loose cannons out there who may cost Americans as much as $17 billion a year in blown savings.
The focus on the fiduciary rule takes me back to my days as a trading instructor, when I traveled the country giving seminars and teaching hundreds of thousands of people how to trade options.
In every session, students would tell me stories of conversations with their financial advisers; the advisers would lay horror stories on – thick – to convince them to stay away from "dangerous" options.
The thing is, I recognized these “scary” trades as some of the most lucrative, risk-manageable moves a trader could make! These "advisers," for reasons we’ll see in a minute, were keeping people away from some huge profits.
So, some of my students had been forced to act with incompetent advice, or bad or incomplete information. Naturally, with no one to help, they made some costly mistakes in the process.
Well, I’m going to show you what I showed them: how best to avoid those mistakes and safely capture your profits.
But first we’ll look at the source of the “big scare”…
Why Wall Street Makes Options Sound Frightening
One of the reasons options trading has a bad, scary reputation is because the some financial advisers simply never spent the time to learn how options actually work. In turn, they can't advise their clients on how to trade them successfully.
What they can’t or won’t say is that options are actually vehicles used to mitigate, or hedge, your risk in the stock market.
They allow you to take part in a stock's price movement with significantly less capital, which reduces your risk on the trade. Options, when used the right way, can make you more money on your trades faster (and with less risk) than simply investing in the stock.
The "problem" with options isn't options themselves… it's not knowing how to trade them the right way (or at all).
Now, in order to become an adviser, you've got to pass a series of regulatory financial licensing exams. One of these exams, called the Series 7, includes a small section on options, so exam takers don’t really need to know much about options to pass the test and get licensed.
In fact, a survey conducted by the Financial Planning Association found that some of these fully licensed "advisers" confessed to not really knowing how to invest.
For that one simple reason, these bad-apple advisers won't allow you to trade options, citing their risk. But really, they simply don't know enough about them and don't want to risk losing clients – or, more to the point, their commissions – because they can'…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.